Additional Praise for American Gridlock doc

Woody Brock is one of the few leading economists who can combine high-powered theory and deductive logic to yield practical solutions to real-world issues.. In American Gridlock, he use

American Gridlock

“Woody Brock’s writings are often the fi rst place I encounter issues that soon become

cen-tral debates within public policy He is prescient, penetrating, broad, surprising and wise

Some writers illuminate yesterday’s news, a few may shed light on tomorrows But very few

thinkers can help you to understand the issues that will shape not only next year, but also

the next decade As America faces a pivotal election, his book could not be more timely.”

—Edward Smith, The Times (London)

“The events of the past several years have clearly exposed the faults in standard

eco-nomic and fi nancial analysis And the ecoeco-nomics profession currently seems at a loss

to provide credible and practical policy prescriptions for the current malaise facing the

U.S and other major countries In this fascinating book, Woody Brock stands above

the crowd with his original and well thought out plans for a sensible way forward to a

brighter future It is a welcome counter to the widespread gloom that surrounds most

of the discussion of the outlook.”

—Martin Barnes, Chief Economist, BCA Research

“The world is bogged down by incremental thinking and yearns for some “big ideas” to

liberate us from the serial crises that confront us Over the years “Woody” Brock has proven

himself as an original thinker whose solutions to problems often turn out to be right Now,

in this book, we have a set of recommendations that may put us on the right course.”

—Byron R Wien, Vice Chairman, Blackstone Advisory Partners LP

“Woody Brock tackles America’s big problems at a breathtaking scale No small ideas here

And no fl inching from the conclusions which follow from the fi erce logic he applies Read

this book to fi nd a way forward out of the broken politics and doctrinaire policies that

leave so many disgusted and depressed to the prospect of a genuine prosperity.”

—Joseph Dear, Chief Investment Offi cer, California Public

Employees Retirement System (CalPERS)

“Woody thoughtfully addresses the critical issues facing our country and shows how

they can be resolved using a different analytical approach A must read for any serious

market participant.”

—Susan E Manske, Vice President and Chief Investment Offi cer,

The John D and Catherine T MacArthur Foundation

“Woody Brock is an American masterpiece There is no one like Woody No one is able

to think as broadly as Woody, while simultaneously thinking so deeply No one is as

amusingly insightful, witty and provocative as Woody Woody’s economics are a blend

of deep, revolutionary, insight and common sense I will never know how he does it,

but I deeply appreciate that he does it No one is a better catalyst for my own thinking

than Woody Read American Gridlock Savor American Gridlock Allow yourself to be

pro-voked and prodded by American Gridlock Then put it down, go fi shing, then reread a

month later You will be deeply and lastingly rewarded for your efforts.”

—Richard N Foster, Investment & Advisory Services;

former Managing Director, McKinsey & Company;

author of Creative Destruction

I have seen his insights prove true, especially in cases where he has challenged the

pre-vailing wisdom of the era Now for the fi rst time he addresses a general readership, with

a comprehensive assessment of how to cope with the most intractable public problems

of our time I don’t agree with every one of his prescriptions, which is why I am all the

more sincere in recommending the thoroughness and rigor of his logic.”

—James Fallows, The Atlantic

“American Gridlock is a major endeavour containing deeply profound insights It

requires the courage to see that economics has largely failed and must be replaced as

the master discipline by political theory and science, and with a new emphasis on

fair-ness and justice in the distribution of benefi ts and rewards Woody Brock is one of the

few thinkers of our times who can tackle this mountainous task and unlock the paralysis

in which the increasingly muddled debate about Capitalism has plunged us.”

—Lord Howell of Guildford, Minister of State, Foreign and Commonwealth Offi ce, UK

“If Woody Brock did not exist, God would have had to invent him He is a unique,

chal-lenging thinker who makes most conventional economic forecasters look like

trend-followers Serious investors and students of public policy should be delighted that he

has fi nally written a book in which his renowned analytical approach focuses on public

policy This is badly-needed fresh air in a seriously polluted environment.”

—Don Coxe, Chairman, Coxe Advisors LLP

“American Gridlock provides a compelling framework for citizens, policymakers and

mar-ket participants to overhaul their views on many important issues of the day The power

of Woody Brock’s approach—emphasizing deductive reasoning and eschewing

infor-mation overload—makes this elegantly written book a must read for those who value

understanding over data I would suggest burying oneself in American Gridlock before

occupying Wall Street, the executive suite or public offi ce.”

—Scott Bessent, Chief Investment Offi cer,

Soros Fund Management

“H Woody Brock is one of the few leading economists who can combine high-powered

theory and deductive logic to yield practical solutions to real-world issues He

con-stantly surprises and inspires with new creative inputs and insights In his latest book,

he provides thought-provoking ideas on how to get a polarized and gridlocked America

on the path to progress.”

—Christian Casal, Offi ce Manager McKinsey &

Company, Switzerland

“If you can handle the truth about America’s Lost Decade, Phiberalism, Leverage,

Thugocracies, and Distributive Justice then American Gridlock is a must read You will

leave behind today’s heads I win, tails you lose mentality No more repetitive

talk-ing heads, know it all politicians and tired academics Woody offers up common

sense solutions based on sound reasoning to today’s pressing problems Finally, the

TRUTH!

—John H Carlson, Fidelity Investments, Boston

critical problems confronting the US today and leads the reader to compelling win-win

policies that will break the current gridlock and put America on a path to sustainable

prosperity His work is original and of critical importance The clear thinking and

opti-mism of one of the world’s great thinkers obviates the need to contemplate writing

America’s obituary Anyone with a vested interest in our future should place American

Gridlock at the top of his reading list.”

—Jan L Yeomans, Vice President and Treasurer, 3M

“Woody is a paragon for prosperity, and he is a master of truth and its

processes—some-thing our postmodern age has let drift out of the public discourse He must be read by

politicians, policymakers, CEOs and advisers, and by everyone concerned with today’s

problems and building a sustainable and prosperous future He shows how it can be

done without unnecessary pain, making this book the antidote to the current global

economic and fi nancial malaise His new book is a must read for every politician,

poli-cymaker, adviser, CEO, and everyone concerned with today’s problems and building a

sustainable future.”

—Michael Roux, Chairman, Australian Davos (ADC) Forum

“If ever there was a time when a fresh, original approach to understanding the

chal-lenges facing democratic capitalism was needed, it is surely now This book offers such

an approach, and provides novel answers to wickedly diffi cult questions about the

sustainability of our way of life in the 21st Century I have admired Woody Brock’s

cre-ative strategies to address complex issues for decades, and rank this book as his

great-est, and most important effort yet.”

—Keith Ambachtsheer, Director, Rotman International Centre for Pension Management, Rotman School of Management,

University of Toronto

“American Gridlock surpasses the lofty expectations of a long-standing client To

pro-vide ‘win-win’ solutions to our most vexing economic problems, Woody employs

commonsense coupled with profound and not often cited academic principles His

analysis addresses the challenges—defi cits, entitlements, fi nancial meltdowns, dealing

with China, and Distributive Justice—that must be confronted to arrest the decline of

the West Most impressively, his is a refreshingly independent and optimistic voice in an

era of partisanship and pessimism.”

—Ed Sullivan, Ph.D., CFA, Managing Director,

General Motors Asset Management

“American Gridlock, the new book by Woody Brock, should be required reading in

Washington First, because it is offers real solutions to many of today’s biggest problems that

are based on solid grounding in economic and political theory Secondly, because it offers

real hope that there is a way out if only folks will start to think differently and creatively.”

—Will McLean, Vice President and Chief Investment Offi cer,

Northwestern University

“I have known Woody for many years and have always admired his brilliance on

eco-nomic issues He has advised many of us on looming ecoeco-nomic disasters including

in today’s economy then sets his sights on prescriptions for fi xing them—prescriptions

that others are unable or unwilling to see This stunning work is wholly different than

anything that has come before it, with invaluable insights for policymakers,

business-men, and everyday citizens alike This book is a must read for anyone who longs for

Washington D.C to stop the shouting and start addressing our nation’s problems in a

real and meaningful way.”

—J Pepe Fanjul, Vice Chairman, President, and Chief Operating Offi cer of Fanjul Corp., and Florida Crystals Corp.

“American Gridlock provides the fi rst optimistic analysis suggesting how the United States

can recover its leadership position and solve its strategic fi nancial dilemmas The U.S

has lost its moral and political compass Woody Brock suggests it can be regained by

using an approach to the issues based on reasoning from fi rst principles, clear defi

ni-tion and consistent logic Everyone interested in the future of American leadership

must read and study this book It is hard work but worth it.”

—Sir Roderick Carnegie AC, Chairman, Pacifi c Edge Group

“Across the years, the noted decision theorist Dr H Woody Brock has advised a global

clientele of public and private sector leaders faced with crucial challenges Thanks to

this deeply intelligent, clearly written, and heartfelt book, the commonsensical wisdom

of a legendary advisor to investors, corporations, republics, kingdoms, foundations, and

NGOs, now comes home to the USA, where it is sorely needed.”

—Kevin Starr, University Professor and Professor of History,

University of Southern California author of

Americans and the California Dream, 1850–1915

“Woody’s writings including his new book, American Gridlock, should be required

reading for all current and aspiring members of Congress and the White House He

always provides well founded and insightful commentary that identifi es and explains

complex developments in economics and fi nance and provides practical solutions to

the enormous challenges facing the United States and the world economy.”

—Dennis Schwartz, Vice President, Pension Fund &

Investments, Deere and Company

“Woody Brock presents a powerful and provocative explanation of a public choice system

that has lost its way Through compelling logic and lucid narrative, he offers a bold solution

to the current crisis and paints a picture of an economic future that can be salvaged This

book is compulsory reading for anyone with a serious interest in public policy.”

—Peter Crone, Chief Economist, Business Council of Australia and former Senior

Economic Adviser to the Prime Minister of Australia, the Honourable John Howard

“Woody Brock is a master at explaining complex, highly mathematical and often

over-looked economic theories in terms anyone can understand In American Gridlock, he uses

new and sophisticated economic theory to derive win-win solutions to fi ve of America’s

most pressing problems His focus on deductive logic provides clarity of thought that

should serve as a standard for economic and fi nancial writers everywhere.”

—Chris Doheny, Associate Director of Asset Allocation and Risk, The Ford Foundation

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Brock, H Woody.

American gridlock : why the right and left are both wrong commonsense 101

solutions to the economic crises / H Woody Brock.

p cm.

Includes index.

ISBN 978–0–470–63892–7 (hardback); ISBN 978–1–118–23462–4 (ebk);

ISBN 978–1–118–22079–5 (ebk); ISBN 978–1–118–24122–6 (ebk)

1 United States—Economic policy—2009– 2 Right and left (Political

science)—United States 3 Capitalism—Social aspects—United States.

I Title

HC106.84.B76 2012

330.973—dc23

2011039260 Printed in the United States of America

of wood, look for its thinnest part, and drill a great number of holes where drilling is easy.”

—Einstein

■ ■ ■

Dedicated to Kenneth Arrow, the late Horace Brock, Sir Roderick Carnegie, the late John Harsanyi, Mordecai Kurz, Mendel Sachs, and Lloyd Shapley

Mentors all.

Preface xiii

What to Do About It

• What Went Wrong: Origins of the Dialogue of the Deaf

• The Role of Deductive versus Inductive Logic in Policy Analysis

• The Illogic of Policy Analysis Today

• What Must Be Done to Raise the Level of Debate

A Socratic Dialogue with the President Explains Why Not

• Reasons for Lackluster Growth During the Remainder of this Decade

• “Good” versus “Bad” Defi cits, and the Main Policy Proposal

• The Identifi cation and Ranking of Public Investment Projects by Their Return

• When Huge Defi cits Are Justifi ed: A Unifi cation of the Arrow-Kurz and Keynesian Theories

How to Drive Health-Care Spending Down while Increasing Access

• A Supply-Side Solution to the Health-Care Crisis

• Three Basic Assumptions for an Optimal Health-Care System

• Expert Systems and Automation

• Redressing the Social Security Defi cit

Chapter 4 Preventing Perfect Financial Storms 119

When Everyone Was Too Clever by Half

• The Four Origins of Today’s Financial Crisis

• The Role of Bad Economic Theory

• Emergence of a Pathological Incentive Structure

• Requisite Policy Reforms

How Not to Deal with China

• The Origins of Economics Imperialism

• The Possibility of the Hegemony of Political Science: The Nash-Harsanyi Pluralistic Bargaining Model

• How Not to Negotiate with Thugocracies—The Case Study of China

• The Remarkable Power of the Bargaining Model in Political Science and Beyond

An Idealized Political Economy, with Distributive Justice

• True Textbook Capitalism, and the Correct Role of Government

• Beyond Effi ciency: The Eight Ideals of an Optimal Social System

• Distributional Equity

• A Comprehensive Theory of Distributive Justice

Conclusion 231

Appendix A Supply/Demand Summary of the Patient Protection and

Affordable Care Act 235 Appendix B Dynamics of Total Health-Care Expenditure 241

Notes 249

Index 267

Keep it simple But not too simple.

—Einstein

Whether today’s anxiety stems from the inability of politicians in

Washington, DC, to fund the U.S welfare state, or from the intractable

euro crisis in Europe, there is a rising sense of gloom and helplessness

on both sides of the Atlantic I am an optimist, and this book is offered

as an antidote to this contagion of gloom It proposes solutions to

many seemingly insoluble problems, for example, the prospect of a

Lost Decade, and ballooning U.S health-care spending I believe these

to be novel solutions, and in arriving at them, I have drawn upon

new and quite sophisticated theories that are based upon deductive

logic These are the levers and pulleys that make it possible to identify

new policy solutions

This book has three goals The fi rst is to identify fi ve

impor-tant problems confronting the United States that must be addressed

and solved The second goal is to champion the role of deductive as

opposed to inductive logic in arriving at solutions to these problems

Deduction yields much better results, particularly in policies that are

win-win in nature By way of review, “deductive logic” in this context

is the process of laying down some Basic Assumptions or axioms, and

then deducing the desired policies from those axioms—when possible

This process is much less prone to bias than that of “inductive logic,”

where policy solutions are sought from the analysis of real-world data

The third goal is to demonstrate how this discovery of win-win

policies makes it possible to tone down today’s Dialogue of the

Deaf—that Left-versus-Right shouting match that has resulted in

American gridlock A far greater consensus is possible than is now

recognized, and gridlock can be broken on issue after issue This

book should be read at these three different levels of analysis

corre-sponding to these three different goals

Identifying Five U.S Challenges

Each of the following challenges confronts the United States now,

and will do so for years to come Resolving them is fundamental to

the nation’s future

1 The Threat of a Lost Decade: There is a very real possibility

that the decade of 2011–2020 will be one of slow growth, very high unemployment, rising federal debt of the wrong kind, an accelerating loss of bond market credibility, and an end to U.S economic leadership for the fi rst time in a century Can

we prevent a Lost Decade of this kind? Yes, we can There is a unique solution to the nation’s current economic crisis, a par-ticular type of U.S Marshall Plan This conclusion is deduced from fi rst principles utilizing a branch of advanced macro-economic theory that is not familiar to most economists and policy analysts

2 The Entitlements Crisis: Polls make clear that the American

public is fi nally aware that today’s welfare state is in terminal decline My favorite indicator of this reality is the poll in which more young Americans under 30 believe they will see fl y-ing saucers than believe they will ever receive Social Security checks Additionally, people are beginning to understand the role that has been played by “phliberals” (phony liberals)

in causing this state of affairs A phliberal is a well-meaning person who blindly endorses a fl awed concept of equality between people “I believe that a woman is equal to a man

That a gay person is equal to a straight person That a poor person is equal to a rich person That a white person is equal

to a black person But that an old person today is four times superior to an old person of the next generation, and should therefore receive a return on lifelong Social Security contri-butions four times greater than will be received by a retiree

in the next generation.” A genuine liberal would insist that

“an old person today is equal to an old person tomorrow, and

both should receive the same return on their contributions.”

Phliberalism is to liberalism what the Tea Party is to tivism: an embarrassment

conserva-Phliberalism must be exposed for what it is, and the welfare state must be rationalized so that tomorrow’s elderly will get

a fair shake In the case of the United States, this implies a complete rethink of ballooning Medicare and Medicaid spend-ing, the heart of the entitlement crisis At the policy level, might

it be possible to significantly increase access to health care for

millions while at the same time driving down total health-care

spending as a share of GDP? Yes, this is in fact possible, and there is a unique solution to this problem that is deduced from three simple axioms Regrettably, this solution was not known and was thus never considered during the 2008–2010 debate over U.S health-care reform

3 The Risk of Future Financial Market Meltdowns: Capitalism

has egg all over its face, largely because of the global fi nancial crisis of 2007–2009 But what exactly was the cause of this? Was capitalism itself to blame? Or was it particular abuses within the mortgage and housing sector? And what about greed and self-dealing on Wall Street? Were these also to blame? While these frequently cited causes certainly exacerbated the Perfect Storm, the true causes ran much deeper As will be shown utilizing the new theory of “endogenous risk” recently devel-oped at Stanford University, the true culprit was excess leverage legitimized by the U.S government And because excess lever-age has not been suitably curbed since the crash, there will

be future Perfect Financial Storms, even if no one is greedy

These must be prevented, and fortunately they can be

4 The Need to Learn How to Bargain Effectively with

Thugocracies: The rise of China has been one of the biggest

stories on Planet Earth since 1980 But was its astonishingly high growth rate legitimate, or did it result from predatory Chinese policies that boosted its own growth rate at the expense of its trading partners? Consider China’s currency manipulation To listen to commentators and to read the op-ed pages during the past decade, it would seem that China has fi nally addressed its currency issue after dragging its heels for a long time After all, its currency has risen against the dollar by about 27 percent since 2005 But this is highly misleading: The dirty little secret

here is that, despite this recent increase, the offi cial exchange

rate of the yuan/dollar remains nearly 45 percent below what it

was back in 1990, incredible as that might seem

Had China not cheated its way to success by violating almost every norm of free and fair trade, the currency should have at least tripled since 1990 according to economic theory—and should certainly not have been cut in half Had China been compelled to comply with acceptable international trade policies, millions of Western jobs that were “outsourced” would probably have been saved But the U.S government buckled at every stage of the way, always apologizing for China and never forcing that nation to pay any price for its unfair practices It is time for the U.S government to stand up for its citizens, earn-ing an A rather than a D in Bargaining Theory 101 Drawing upon groundbreaking work by mathematician John F Nash

Jr (who is most well known from the book and movie about his

life, A Beautiful Mind), we show how this can be achieved

5 The Need to Salvage Capitalism, and to Confront “Distributive

Justice”: What kind of an economic system is the best one, and

what exactly does that mean? Today’s debate about the pros and cons of “capitalism” are inevitably muddled, and riddled

by confusion about what Adam Smith and his descendants actually believed in But if the status of capitalism is problem-atic, consider the plight of anyone attempting to understand the issue of distributive justice, the subject of who should receive how much of the “pie,” and why This is arguably the most important and least discussed issue in all of public affairs

As the Nobel laureate economist Kenneth Arrow tellingly pointed out in a 1987 interview with the economic historian George Feiwel: “If one asks, ‘What does the economic system produce?,’ the answer is that it produces a distribution of income.” Slam dunk

Who really does owe how much to whom, and why? Being either for or against “the Bush tax cuts” may be a litmus test

of party loyalty in the United States, but having a position on this matter falls far short of possessing a proper theory of dis-tributive justice Yet Democrats, Republicans, op-ed writers, and bloggers never come clean on this issue It is politely side-stepped In contrast, Harvard philosopher Michael Sandel

does confront it, and in doing so he has become the global rock

star of international academia amongst students worldwide

Maybe the young evince a deeper understanding of what really matters in life than we more cynical older guys do Given grow-ing outrage over today’s inequality of wealth and income, we must at long last start addressing the thorny issue of fair shares

The final chapter of this book explains how to do so

Solutions to all fi ve of these problems are proposed in Chapters 2

through 6 These solutions are somewhat original, and this brings me

to the second goal of this book

Finding Win-Win Solutions via Deductive Logic, Not via Data Crunching

One main reason for today’s gridlock is that we do not think

cor-rectly about policy problems and how to solve them Because of this,

we end up deadlocked, arguing at cross purposes In the philosophy

of science, we learn that there are two principal routes for arriving

at solutions to problems of most any kind We can utilize the logic

of induction (think data crunching), or else the logic of

deduc-tion (think reasoning from fi rst principles) The history of science

makes clear that most important problems have been solved over

the ages by deductive logic Students fi rst come into contact with

this type of thinking when they study Euclid’s geometry Some 300

years before Christ, Euclid showed how the truths about plane

geometry could be deduced as theorems in a step-by-step manner

following from precise defi nitions, and from Basic Assumptions or

axioms This is known as the axiomatic method, and it can be utilized

either formally or somewhat informally

Did you know that this is the same way John F Nash Jr., solved

the problem of how two people bargaining over a pie would reach

an agreement on how to split it? Or that this is the way Einstein

arrived at his theory of general relativity? Did you know that this is

the way Peyton Young arrived at his formula for measuring “to each

according to his contribution” in ethics—and proved there could

be no other solution? Or that “to each according to his needs” has

been clarifi ed in a similar fashion? Did you know that this is the way

in which Claude Shannon discovered the true meaning of

“infor-mation” required for the modern computer revolution? Or that

this is also the way the great mathematician John von Neumann

dis-covered the correct way for people to make a rational decision in

the face of uncertainty? And fi nally, did you know that this is the

way to determine a solution to the U.S health-care spending crisis?

(See Chapter 3.)

Most people do not understand this point They incorrectly

assume that, with enough data, scientists can “crunch” their way to

the truth In reality, data almost always underdetermine the truth,

and that partly because of this reason, inductive logic alone has led

to the discovery of very few important scientifi c truths This is not to

suggest that data are unimportant in scientifi c discovery, for they

certainly are To begin with, real-world experience and the

infor-mation we acquire get us thinking about problems, and play a role

in suggesting axioms, or fi rst principles But the solutions to problems

that we seek are then deduced from these axioms, with the assistance

of little or no data Information reenters the picture in the fi nal

stage of the scientifi c discovery process known as “confi rmation.”

Data-gathering experiments are run to test the hypotheses that have

been deduced

Why do I stress this point? A principal reason why is that today’s

young people are completely unfamiliar with the logic of deduction,

much less aware of its power Even Euclidean geometry is no longer

studied But should we be surprised? After all, this is the age of the

Internet, and we are all inundated with “information” purporting

to reveal this or that, but which in reality reveals little This is the

era of spreadsheets, of data mining, of tweets, and of

economet-rics Give a smart Ivy League investment banking intern an Excel

spreadsheet, give him access to the wealth of data on the Internet,

and he will data-mine his way to the truth—or so he thinks

The fi rst mistaken assumption here is the belief that truth can be

identifi ed in this manner But it almost never can be, as can be shown

formally The second erroneous assumption is that someone is

actu-ally interested in discovering the truth from the data The intern’s

boss wants those results by 6 p.m today, and he wants them to support

his view that the deal he is working on is a winner How interested is

he in the truth? What about politicians? Do they and their Left-wing/

Right-wing think tanks really want to know the truth about, say, the

impact of different tax rates on GDP? Or do they merely wish to

bolster their ideological prejudices?

Regrettably, data are increasingly cherry-picked for precisely this

purpose In banking, the intern may be told to identify data

lend-ing support to a project his boss already likes In politics, you need

only contrast the op-ed articles in the conservative Wall Street Journal

and the liberal New York Times to witness the same phenomenon in

spades Each side searches for and cites facts that support ideological

positions arrived at long before—positions that are prejudiced in

the true sense of that word: pre -judged

All this leads to an amplifi cation of today’s Dialogue of the Deaf,

in which there is neither an interest in truth nor a logical method

for discovering it, if and when it is sought But this is precisely where

the opportunity lies For the use of deductive logic leads to better and

more compelling policy solutions than does today’s bastardized logic

of induction In particular, it leads to win-win solutions that have a

much greater chance of gaining bipartisan support than the win-lose

policies that dot newspaper headlines But why is this the case?

The answer is seductively simple In applying deduction to

top-ics ranging from public policy analysis to pure mathemattop-ics, the same

two-step process takes place First, it is necessary to specify a set of

Basic Assumptions that, by their very nature, should be “transparently

true.” In number theory, we must accept: “For any integer n, there is

always a next bigger integer, n + 1.” Seems reasonable to me Or in

plane geometry: “Between any two points on a plane, there will exist

one and only one straight line connecting them.” Seems reasonable

Or in health-care reform, “A satisfactory health-care system must

fi rst provide universal coverage, and second cause total health-care

spending eventually to shrink as a share of GDP.” Don’t these two

assumptions seem as desirable as apple pie and motherhood?

Second, solutions to problems can often be deduced from simple

axioms of this kind, and when this is the case, disagreement can be

quelled For if simple and compelling axioms logically imply a set

of policies consistent with them, then who can disagree with such

policies? If there is a health-care system satisfying these two appealing

axioms, who would reject it? What remains for the Right and the

Left to bicker about? In accepting the axioms, you accept the

con-clusions The Dialogue of the Deaf thus can be dampened Indeed,

the conclusions arrived at what seem like lessons from the syllabus

of Common Sense 101 Whether mathematics is needed to proceed

from axioms to conclusion, or not, makes little difference What

matters is the quality of reasoning involved, and whether the axioms

are compelling to any reasonable person, regardless of his or her

political leanings

Can this elegant approach work in the case of the real-world

challenges identifi ed previously? Yes—much more so than you might

imagine In this vein, the second goal of this book is to convince

you of this by applying deductive logic to our fi ve problems and

hopefully deducing better solutions to each than have hitherto

been proposed

Dampening the Dialogue of the Deaf

Reasoned debate about important policy issues has morphed into a

shouting match in which there is no recognition that win-win

solu-tions exist But they do exist, and they are exactly what the doctor

ordered Such policies are needed to build bipartisan support on

issues, and thus to terminate gridlock here in America, and gridlock

elsewhere for that matter My third goal is to demonstrate that the

win-win solutions I deduce for the fi ve problems analyzed are neither

Right wing nor Left wing in nature Because of this, a genuine

consen-sus becomes possible, one that should help rid the nation of gridlock

Interestingly, Plato anticipated Euclid’s achievement in

his celebrated Socratic Dialogues characterized by their dialectical

method The goal was for everyone to reason his way through to a

conclusion Unlike Euclid who restricted himself to geometry, Plato

covered a broad range of philosophical subjects, and utilized an

elementary and informal type of deductive logic In reviewing two

of his dialogues for this book, the Crito and the Apologia, I was

sur-prised at how many steps were involved in his logic, and how much

hard work was required by the participants in order to reach

con-clusions There was a commitment to civilized debate Sound bites

played no role The ancient philosophers understood much better

than we do that issues worth debating are complex, and require

multiple steps of logic to reach a solution: chains of deduction, as

it were The idea that an eight-second sound bite from some cable

news “expert” could settle some important issue would have struck

them as risible And how right they would have been

If I had one wish in this regard, it would be that prominent fi gures

in today’s media would assume the role of Platonic critics, and target

politicians’ policy illogic more than their sexual and fi nancial

pec-cadilloes In this vein, I want to help create a new game of “Gotcha”

to be played throughout the media community This game could

impart a new dimension to political discourse throughout the media,

a dimension that might render deduction-based policy analysis as hip

as Michael Sandel at Harvard is rendering moral theory This too can

be done, and I shall sketch how

Summary of Chapters

Chapter 1 reviews the issues of deductive and inductive logic, and

relates them to today’s Dialogue of the Deaf I stress how there are

many different forms of deductive logic relevant to problem solving,

and that some of the most useful of these are quite new These include

the logic of game theory, of risk assessment theory, of the economics

of uncertainty, of incentive structure theory, and of axiomatic moral

theory where issues of justice and fairness are fi nally being

demysti-fi ed Today’s growing problem of information overload is also

discussed I argue that this burden can be lifted by a greater reliance

on deductive logic—since it usually turns out that very few variables

end up mattering in theories that are derived from fi rst principles

In this regard, the phrase “information overload” is a much better

descriptor than people realize

For example, suppose you were attempting to determine a

solu-tion to Nash’s celebrated bargaining problem: How will two different

players with different tastes and endowments agree to divide a pie?

You seek a formula that can predict what the division of the pie will

prevail in any situation Just think of the vast amount of data you

might want to crunch to determine which of 40 possible “factors” best

explain bargaining behavior Think of all the experiments you could

conduct to discover the dozen or so variables that really matter! In

doing so, however, you would never possibly conceive of what Nash

discovered via axiomatic deduction: There is only one variable that

matters to the outcome—the degree of risk aversion of Player 1

com-pared to that of Player 2 No information overload here!

Analogously in physics, recall two of the most famous formulas in

the history of science: Newton’s F ⫽ ma and Einstein’s E ⫽ mc 2 There

are only three variables in each Surprisingly often in the history of

science, the deeper the truth, the fewer the number of variables or

“factors” that matter—and the less the information needed The

Good Lord was indeed parsimonious and elegant, as philosophers of

science like to say Who is revealing this to today’s students? Do they

understand that the great problem with information lies not in its

quantity or quality, as is commonly supposed, but rather in its

irrel-evance in helping us unearth the truth?

My fi nal and favorite example is the Birthday Paradox from

prob-ability theory Suppose you are at a dinner party of 50 people, and

you are asked to bet on the probability that some two people present

share a common birthday What should your betting odds be? Using

informal induction, you could survey hundreds of college graduates

to arrive at a consensus probability In doing so, you will discover

that there is a 7.5 percent chance of a common birthday But don’t

use this result as it is wrong, and will be bad for your wallet! But how

then do you learn the truth? Using more formal inductive logic, you

could organize and pay for one hundred similar dinner parties of 50

people, and discover empirically how many times two people share a

common birthday But that would be very expensive Happily there is

an inexpensive shortcut You simply deduce the answer from the laws

of probability theory in a few minutes, starting with the only

“informa-tion” needed: the odds are 1 in 365 that any person present at the

party is born on any given day of the year In this manner, you learn

via deduction that the true probability of a common birthday is 97

percent Virtually no data were involved, you saved a lot of money,

and by making the appropriate bet, you will make a lot of money

You see, better thinking pays

Chapter 2 focuses on how to salvage the Lost Decade we have

entered I fi rst propose four macroeconomic objectives, namely, more

rapid growth, much lower unemployment, much smaller fi scal defi cits

so as to placate bond markets, and massive infrastructure investment

I then argue that there exists a single macroeconomic solution that is

consistent with all four of these goals, and that satisfi es an associated

set of constraints This is a Marshall Plan of sorts In demonstrating

that all this is possible, the crucial point is that the word “defi cit” as

currently used turns out to have no meaning at all For there are good

defi cits, and bad defi cits, and only the latter trouble the bond markets

Sloppy defi nitions have always been a problem in theory construction

Recall the fate of the “phlogiston” in chemistry—the alleged source of

fi re Once Joseph Priestley discovered oxygen in the eighteenth

cen-tury, it was realized that there was no phlogiston The same fate befell

the concept of the “ether” in electromagnetic theory once Einstein

showed that it did not exist My own focus will be on dispelling

widespread confusion about the term “defi cit.”

A principal source of inspiration in this reformulation of the

meaning of defi cits was the treatise Public Investment, the Rate of

Return, and Optimal Fiscal Theory published in 1970 by Kenneth Arrow

and Mordecai Kurz at Stanford University Their work is completely

deductive in nature Regrettably, this book never gained a wide

audience, primarily because it was very mathematical Nonetheless,

it never got any better Given today’s crisis four decades later, the

Arrow-Kurz theory encourages a complete rethink of the meaning,

the proper role, and the correct size of fi scal defi cits It implicitly

suggests that we need a domestic Marshall Plan, one that I fl esh

out As is consistent with the third goal of this book, my

conclu-sions about what the United States must do to avoid a Lost Decade

are neither Left wing nor Right wing Rather, they are win-win in

nature, should generate consensus, and should thus dampen today’s

Dialogue of the Deaf

Chapter 3 addresses the explosion of future spending on

“entitle-ments.” The chapter principally addresses the gargantuan problem

of health-care spending, a funding problem that dwarfs that of Social

Security At the end, I briefl y tackle Social Security, if only to

demon-strate that this is an easy problem to resolve as many policy analysts

already appreciate

In addressing runaway health-care spending, I start from scratch,

utilizing the deductive logic of supply/demand analysis in economics

The basic result is a theorem: Under eminently reasonable

assump-tions, the United States will see the quantity of health care increased,

yet health-care spending decreased as a share of GDP, if and only if the

“supply curve” of health-care services shifts outward faster than

the “demand curve.” Conversely, I prove that if the reverse occurs,

with the demand curve shifting out faster than the supply curve

(which under ObamaCare may well shift backwards), the nation

will go bankrupt Additionally, the analysis demonstrates that

the kinds of “cost controls” (a term with no meaning, it turns out)

fashionable within the Washington Beltway are, in most cases,

counterproductive, and end up driving total expenditure higher

These are not my opinions—they are theorems that hold true under

reasonable assumptions

The main results here are proven schematically using simple

supply/demand graphs within the text But because of their crucial

importance to the nation’s future, the results are proven formally

in Appendix B Imagine my editors’ shock: “Equations? My God,

we must hide these What will a reader think?” Well, relax, as these

equations are hidden at the end of the book, and they are primarily

included for the benefi t of skeptics who are curious about how such

a felicitous care outcome is possible Once again, the

health-care solution I arrive at cannot be defi ned as Left wing or Right

wing Instead, it is win-win in the extreme This should further

dampen today’s Dialogue of the Deaf

Chapter 4 confronts the issues of Perfect Financial Storms such

as the crash of 2007–2009 What really causes such storms, and

once this is understood, what can be done to prevent them in the

future? In engineering, it is well known that “state” and “control”

vari-ables must never be confused The former are states of the system,

for example, the way waves break on the shoreline The latter are

those decision variables that can be manipulated to prevent the waves

from doing damage, for example, constructing seawalls According

to legend, King C’nut of Denmark had to make this distinction

clear to his courtiers

In the case of the recent global fi nancial crisis, most explanations

feature the role of “irrationality,” “greed,” and “stupidity” in generating

Perfect Storms Excuse me, but aren’t these characteristics of human

beings mere state variables? Do we really think we can legislate greed

away, or that there is more greed today than ever before? We might

as well be so arrogant as to think we can legislate teenager

horni-ness away Reread your Aristophanes!

The true control variable that is the culprit is excess leverage

Unlike greed, this can and should be controlled much more than it has

been This point is deduced from fi rst principles In doing so, I utilize

a very new form of deductive logic developed at Stanford University in

the past 15 years This is the theory of endogenous risk developed by

Mordecai Kurz, the same professor who wrote the book with Kenneth

Arrow on fi scal theory mentioned earlier This new theory represents

a true milestone in our understanding of risk, and in particular those

“fat tail” risks that Nassim Taleb describes so well, but fails to explain

from fi rst principles, in his highly readable book, The Black Swan

In particular, the theory makes it possible to really understand

the sources of Perfect Storms without invoking vacuous concepts

such as greed, the phlogiston of fi nancial theory Because I have

benefi ted from many years of Mordecai Kurz’s assistance in extending

his theory to the fi eld of investment management, and thus know

it very well, I am able to make his results seem like additional lessons

from Common Sense 101 But there is nothing obvious about the

diffi cult chains of deductions that Kurz had to make in order to

obtain his results

Chapter 5 is entitled “Bargaining Theory 101: How Not to Deal

with China.” The chapter conveys two quite different messages In

the fi rst half, I argue that the most important domestic and

inter-national problems of our time are becoming ever more political

Therefore, it should not be surprising that economists who are not

trained in political science and political theory have less and less to

say, despite the ubiquity of economic commentators, and the

annoy-ing frequency of their pronunciamenta The lack of serious discussion

about the coming collapse of welfare states throughout the West

offers a case in point To be sure, this development has important

economic consequences, but not causes The distinction here is

fundamental

The most fundamental cause—wherein the cure—lies deep

within political theory, not economics: The “incentive structure”

underlying capitalist democracies encourages politicians seeking

election and reelection to continually promise constituents far

more benefi ts than can ever be paid for in the future The result

has been a wholesale mortgaging of the future over many decades

And now the bill is coming due The late Mancur Olson was a

politi-cal theorist who developed the kind of logic needed to redress this

development But he is gone, and no one has replaced him, in my

opinion Alas, we do not live in the Age of Mancur Olson as we

should, but rather in the Era of Larry Summers Economists rule

supreme, and students fl ock to economics courses as their meal

ticket to a good future But neither Larry nor his colleagues have

said anything of interest about how to redress the incipient collapse

of the welfare state What we need is a veritable rebirth of political

theory, a fi eld that has been moribund

Accordingly, this chapter proposes a strategy whereby political

theory and political science can supplant economics as the master

discipline More specifi cally, my proposal is that the theory of

multi-lateral bargaining developed originally by John Nash and extended

by John Harsanyi should be placed at the core of a new discipline

of political science Incidentally, both these scholars won the Nobel

Memorial Prize together for their work, along with Reinhard

Selten One reason why political science is often dismissed as

“mushy” is that there is no core model underlying it All we get are

a pastiche of unrelated results It is as if we were to study Econ 101

without ever learning about the law of supply and demand, or the

role of perfect competition

The Nash-Harsanyi theory should play precisely this role in

political science and political theory, and I show why at

consider-able depth In particular, I show how Harsanyi’s work made possible

for the fi rst time a precise meaning of “power” and how to measure it

Doing so presupposed the existence of his bargaining model Not

surprisingly, both Nash’s and Harsanyi’s work is completely

deduc-tive, in fact axiomatic in nature Neither relied upon data to arrive

at their theories of bargaining and of power

In the second half of this chapter, I apply the Nash-Harsanyi

theory to China and its trade policies Utilizing Harsanyi’s concept

of relative power, I show how the United States has had far greater

power than China along four of the fi ve dimensions of power that

Harsanyi isolated Yet in almost every confl ict, we have backed

down, and watched China walk away with all the spoils I conclude

that most U.S administrations have been either risk-averse to a

completely inappropriate degree, or else just plain incompetent

when bargaining with their antagonist In either case, it was average

Americans who got hurt for no valid reason

Some readers may fi nd my views here somewhat hawkish This

is partly because I stress the importance of using threat power

dur-ing negotiations, precisely as the Nash-Harsanyi theory prescribes

In today’s environment, the word threat is politically incorrect in

the extreme But excuse me Even if you are a full-fl edged pacifi st,

you had better understand what Nash and Harsanyi deduced from

fi rst principles: It is precisely the articulation of credible threats that

obviates confl ict, that motivates cooperation, and that ultimately

secures peace The U.S Cuban Missile Crisis of the early 1960s is

a case in point Threat power is precisely what defused

thermo-nuclear war But is anything really new? Didn’t the ancients say,

“Si pacem vis, bellum parare,” which translates to, “If you wish for

peace, prepare for war.” So once again, my proposals of how to

negotiate with the Chinas of the world are neither Left nor Right

wing, even if they might appear hawkish on the surface

Chapter 6, the fi nal chapter, fl eshes out the concept of an

idealized political economy, and what this concept implies for making

life better for us all With Anglo-Saxon capitalism in the doghouse,

and communism discredited everywhere, it is time to ask: What

properties do people really want from their resource allocation

sys-tems? Is “economic effi ciency” enough? What about stability? Privacy?

Decentralization? Freedom? And last but not least, distributive

justice? I review what classic economic theory has to say about all this,

and in particular what the late economist Leonid Hurwicz

contrib-uted to the subject He was a former teacher of mine at Harvard, and

the best teacher I ever had He was a notoriously “big” thinker who

extended the criteria for good resource allocation systems to include

numerous societal norms other than economic effi ciency, norms like

freedom and privacy For this work and for his related theory of

mech-anism design, he too went on to win the Nobel Memorial Prize

But what about the norm of distributive justice? Doesn’t this

highly “moral” norm lie well outside the province of economics? No,

in fact, it does not A commitment to true Adam Smith capitalism

logically entails a serious commitment to redistribution This point

is virtually unknown, and I devote considerable attention to setting

the record straight Ignorance of this reality has permitted self-styled

conservatives to believe they can comfortably ignore the troublesome

issue of redistribution But if they are true capitalists, they cannot,

as it turns out In one of the greatest theorems in the history of

economic theory established back in 1953, we learned that true

capi-talism and redistribution from the lucky to the unlucky go hand in

hand They represent two sides of the same coin

Nonetheless, despite the strong implications of economic

the-ory for distributive justice, economists have largely sidestepped

this controversial issue, preferring instead to focus on the

non-controversial norm of economic effi ciency But there was always a

moral in addition to an economic case for fair shares The good

news in this regard is that moral theorists have revitalized interest

in distributive justice by utilizing new insights from decision theory

and game theory Indeed, during the past half-century, three

compre-hensive theories of distributive justice have been set forth: one

by John Rawls at Harvard, one by utilitarian philosophers

includ-ing John Harsanyi, and one by myself

My own contribution was to insist that any satisfactory theory of

justice must include two distinct distributive norms: to each according

to his needs and to each according to his contribution Starting with

Karl Marx’s Communist Manifesto of 1848, these two norms were

usu-ally considered to be incompatible, and a widespread prejudice

in the philosophical community emerged favoring needs-justice

Contribution-justice on the other hand has been ignored But this is

not satisfactory Imagine operating a sports team without an ability to

identify and appropriately reward MVPs In the real world, “fairness”

requires paying appropriate respect to both concepts in their

respec-tive habitats A proper theory of justice must respect this

These three theories are reviewed and contrasted in the

fi nal portion of Chapter 6 For once, the moral dimension of

fair distribution is squarely confronted, not circumvented Once

again, the solutions arrived at cannot be dismissed as Left wing

or Right wing This is particularly true of my own theory, which

integrates the needs-norm associated with liberal redistributionism

and the contribution-norm usually associated with capitalism This

fi nal portion of the book is demanding, but it is arguably the most

profound and intrinsically interesting part of the book

Intended Readership

This book has been written for anyone troubled by the decline of

the United States, and indeed of the West, for anyone who seeks

compelling solutions to today’s policy challenges, and for anyone

sick and tired of pessimism and gridlock No mathematics has been

used, except in Appendix B where the health-care spending

theo-rems are proven from fi rst principles Nonetheless, the arguments

are from time to time logically dense, even if clear, and

persever-ance will be required No pain, no gain

It has always been my penchant to talk up to an audience, not

down If a diffi cult theoretical point arises that is important to an

argument, my instinct is to explain it clearly, to assume people want

to understand it, and never to gloss over it “because it is too diffi

-cult for average people.” For those readers who are more analytical

and seek back-up material, extensive endnotes are grouped at the

back of the book I have included these both for the sake of

com-pleteness and to encourage younger readers to pursue the topics

involved at greater depth

There is, of course, a risk in writing a book that covers six

dif-ferent topics The risk is that experts in each fi eld will fi nd many

faults with the analysis The truth is that a book doing full justice

to each of the topics would need to be 10 times longer But I have

not attempted defi nitive analyses Rather, my more modest goal has

been to illustrate how deductive logic can help us identify win-win

solutions to problems that must be solved, solutions that dampen

the Dialogue of the Deaf and break American gridlock The

sub-stantive policy issues involved are best understood as case studies

for the application and appreciation of this logic

A Personal Odyssey

This book represents the summit of a personal odyssey of sorts, which

is one reason I have taken the liberty to use the fi rst person My

interest in “how to think” stemmed from my late father’s insistence

that one’s quality of thought is what matters, and not what one knows

He was a pioneer aviator in the 1930s, but he had previously attended

Harvard Law School, where he said he learned how to think

Though infl uenced by my father, I ended up following my own

course I started reading ancient Greek literature at a very young

age, and began writing on various philosophical and political

top-ics as a graduate student at Princeton Looking back, I now see that

by 1985 I had caught the bug that would result in the contents of

this book, especially its emphasis on the power of deductive logic in

a wide variety of fi elds My obsession had become the importance

of clear thinking, and my fi rst two publications addressed this topic:

one in the “liberal” New York Times, the other in the “conservative”

National Review By way of background, I had passed my

undergradu-ate years at Harvard studying history and economics I only began to

get serious about my studies during a gap year when I went to work

in the interior of Papua, New Guinea There, in the jungle, I began

to read mathematics on my own One thing led to the next, and by

the mid-1970s, I completed my PhD thesis at Princeton applying

game theory to foundational issues in political and moral theory

My great good fortune was to have chosen as my thesis topic the

problem of distributive justice, that is, the issue of who owes how

much to whom, and why This topic had been moribund for decades

until the 1971 publication of the magisterial Theory of Justice by John

Rawls This treatise made the subject red hot, and catalyzed my own

interest at the time But I had a lucky break I had been exposed to

a close circle of mathematical economists under whom I had studied

while an applied mathematics graduate student at Harvard, as well

as to the great West Coast game theorists Lloyd Shapley at the RAND

Corporation and John Harsanyi at the University of California at

Berkeley My involvement with these masters of deduction paid off

in three ways

First, I absorbed their approach to problem solving, and came to

understand the power of their way of thinking I have tried to

incul-cate this throughout this book, if at a very informal level Second,

I learned how stupid I was by comparison with these scholars When

you have extended discussions over several decades with someone of

the stature of Kenneth Arrow, always generous with his time, you are

reminded of your own limitations on every visit Third, I gained a

powerful ability to distinguish sound from unsound arguments This

was the greatest payoff, and its legacy runs throughout this text

Unsound thinking abounds everywhere today, especially among

highly prejudiced commentators who take their own views much

too seriously Rigorous thinking based upon fi rst principles and

clear defi nitions has become an endangered species, if not a

stego-saurus My debt of gratitude to my early mentors is very great

indeed, as indicated in my dedication of this book They, of course,

bear no responsibility for the numerous mistakes and oversights in

this text

My ability to discuss the wide variety of issues analyzed in this

book refl ects my personal career during the past two decades In

the mid-1980s, I was invited to found a small research group that

would focus on “structural changes” in the United States and the

global economy The structural changes to be analyzed could be

demographic, macroeconomic, microeconomic, fi nancial, or

what-ever The range of issues was very broad, and this is refl ected by

the breadth of topics in this book Since historical data and

induc-tive logic are of limited usefulness in assessing structural changes,

I became more reliant than ever upon the use of deductive logic in

analyzing sundry developments across the globe

Coming full circle, I now fi nd that my graduate and postgraduate

research on distributive justice is becoming more and more topical

Indeed, an awakening of interest in this topic worldwide may signal

a change in our intellectual and moral priorities All in all, the time

seemed ripe for a book reprising all these past and present interests

I am particularly indebted to Kevin Commins of John Wiley &

Sons for approaching me to write this book in late 2009 when I had

no intention of doing so, to John O’Leary for invaluable assistance

with Appendix B on health care expenditure, and to Eugene Lancaric,

Mary Ryan, and Charles La Rosa for indispensable editing

H Woody Brock

“Twin Quarries”

Gloucester, Massachusetts

Where is the wisdom we have lost in knowledge?

Where is the knowledge we have lost in information?

—T S Eliot

Two decades ago, during ski season, I had the pleasure of

spend-ing a weekend in the Alpine chalet of Bill and Pat Buckley near

Gstaad, Switzerland For those of you who don’t remember, the late

William F Buckley Jr was the dean of American conservative politics,

having founded the National Review and having hosted the

con-servative talk show Firing Line for three decades At lunch we were

joined by his close friend Ambassador John Kenneth Galbraith, the

celebrated Harvard economics professor who was as liberal as Bill

was conservative Despite their sharply contrasting views on many

topics, the two carried on a civilized discourse in which each put

forth and defended his views intelligently and rationally Even better,

they ended up achieving a modicum of consensus in their views via

the dialectic of step-by-step reasoning Of course, such behavior was

once expected, and the lack of it was seen as “bad manners.” Those

days are long gone

What a contrast their dialogue offers to today’s

deafen-ing Dialogue of the Deaf between Left and Right This can take

the form of shouting matches on cable news talk shows, or stale

cross fi re between liberal op-ed writers at the New York Times

and conservatives at the Wall Street Journal, or debates in the

U.S Congress—even in the Senate, which was once known for

its bipartisan courtesies Today’s Dialogue of the Deaf treats

us citizens to an endless repetition of predictable views by

com-mentators and politicians—views that rarely if ever change The

predictable partisanship of most pundits suggests that they are

completely unaware of an arresting new scientifi c discovery:

PQ is inverse to IQ

Where PQ refers to a person’s Predictability Quotient, and IQ

refers to his or her “effective” Intelligence Quotient

That’s right: The more the reader can predict the conclusion of

a column by reading its fi rst two sentences, the lower the

effec-tive IQ of the columnist The reason why is simple: The columnist

stopped wanting to learn long ago, even if he is reputedly brilliant

and possessed a high IQ at age six A new Nobel Prize in Remedial

Logic should be awarded to those researchers who unearthed this

important new relationship

Almost everyone in the establishment media is now assumed

to be either on the Left or on the Right, in varying degrees, and

their views are highly predictable The fact that Left and Right are

categories that have ceased to be meaningful does not seem to

bother anyone The possibility that a compelling middle ground

might exist seems to have evanesced into thin air And once you

are tagged as on the Left, then you must remain on the Left, and

vice versa Even entire think tanks are now regularly tagged “Left of

center” or “Right of center.” When I made this point to the head

of a very prestigious research institute, he explained to me that the

identity bestowed by such labeling was “very good for the funding

of contract research.” To be sure, there are a number of

commenta-tors who do not fall into these categories Nonetheless, the tenor of

the times is the crossfi re between Fox News and MSNBC The result

is that we are all losers

The Price Paid: Policy Gridlock

Perhaps the most serious price we are paying for this

polariza-tion is policy gridlock on issues ranging from global warming to

national energy policy, to our stance toward Islamic radicalism, and

to entitlements reform—health-care reform in particular Everyone

on both sides of the aisle concedes that there is gridlock and that

little, if anything, is being done about our most pressing problems

But there is widespread misunderstanding about the true cost of

policy gridlock This cost can take two very different forms

First, it can mean that nothing is done about a problem when

arriving at a consensus is impossible Social Security reform to

date offers an example of this form of gridlock The can is forever

kicked down the alley and nothing is done to improve matters The

problem with procrastination is that the longer-term cost of remedial

action skyrockets

Second, gridlock can be broken and legislation passed even

when there is no consensus, provided that a veto-proof majority

exists This is exactly what happened when the Democratic

major-ity in the House, under Nancy Pelosi’s whip, rammed ObamaCare

through Congress in the spring of 2010 The most signifi cant piece

of legislation in a generation passed with no Republican support

whatsoever Gridlock was broken, but watch what you wish for Highly

partisan majority rule victories of this kind can and usually do

back-fi re This will certainly happen in the case of the health-care reform

bill, an all-important piece of legislation that was a bad one, as will

be proven in Chapter 3

To anticipate, the ObamaCare reforms are almost exclusively

focused on “more demand,” with little thought to “more supply.”

Indeed, several of the new bill’s provisions will cause shrinkage of

supply as doctors choose to exit a system mandated to pay them

less each year for standard procedures The point is that, while

the reform bill did break policy gridlock, it did so in a very biased

manner that will cause access to health care to be much more

restricted than intended, and cost growth to be far higher than is

necessary My own question is: How did the level of thinking about

this crucially important issue degenerate to such a point that a

demand-centric set of policies could ever have been considered in

the fi rst place—by either party? My Labrador retriever knows this

is the wrong way to reduce total expenditure So did the Australians

when they expanded health-care coverage in the early 1970s under

Prime Minister Gough Whitlam

How different it was when policy differences in Washington

were ironed out in camera, and indeed in civilized discourse

between such journalists of yore such as James “Scotty” Reston and

Walter Lippmann Their writings conveyed the impression that

they themselves were often as confused by policy dilemmas as their

readers were, and that they were attempting to discover answers for

themselves as well as for their readers Such commentators showed

little interest in ridiculing the views of those who disagreed with

them, as Rush Limbaugh on the Right and Paul Krugman on the

Left regularly do today Readers learned from and alongside these

wiser men

As a result, our own personal views about complex issues were

forged over time via an ongoing learning process, a dialectic of the

sort endorsed by Plato And these views often changed over time All of

this went hand in hand with the reality that, while there were indeed

sharp policy differences between political parties, there was little

policy gridlock in today’s sense Compromises were regularly ironed

out I cannot recall either the Democratic or the Republican Party ever

being described as “the Party of No,” much less being proud of such a

label, as many Republicans are today

What Went Wrong: Origins of the Dialogue of the Deaf

At least fi ve developments over the past half-century have contributed

to today’s Dialogue of the Deaf These range from the culture wars of

the 1960s and 1970s, to the triumph of inductive logic, to signifi cant

changes in lifestyle, and to the advent of extensive Congressional

gerrymandering It will be helpful to review the role played by each

The Culture Wars

To a certain extent, the “culture wars” of the late 1960s and 1970s

hastened the end of civilized discussion as the gulf between the Left

and Right grew, and as the attacks of the one on the other grew ever

more vitriolic Much of what happened refl ected the way in which

political debate expanded to include very personal concerns such as

the obligation to serve in a much-hated war (Vietnam); or the probity

of having an abortion; or the true purpose of public education; or

the rectitude of child discipline; or the validity of “deference” to any

authority, whether Einstein or God; or the quest for sexual liberation;

or the relativism of all forms of “morality”; or the deconstruction of

reason, rectitude, and scientifi c truth Given this turmoil, who could

have been surprised by the infamous Time magazine cover in April

1966: “Is God Dead?” The absolutism of arguments in these culture

wars forced many bystanders to choose sides in a binary manner, and

the politics of the late 1960s and 1970s became nasty indeed Civilized

debate in this environment became almost impossible

Decline of the Classics and of the Dialectical Method

One particular casualty of the culture wars was interest in the

classics—a fi eld of study that was already waning by 1965 After

all, the authors of the great books were dead white males, so how

could they be expected to lead us toward any concept of the truth?

The greatest of the dead white males was arguably Plato, and the

Socratic Dialogues that he promulgated set forth the process

required for truth seekers to bridge their differences and arrive at

the terra fi rma of common ground The timeless graphic image

of this particular pursuit of truth is the cave of ignorance central

to Plato’s Republic The voyage of life was a lifelong learning process

guided by deductive reasoning that gradually led us from the fl

icker-ing shadows of ignorance in the interior of the cave toward the

daylight of truth on the outside To Plato, learning is a lifelong

struggle in which sound bites play no role

Indeed, the dialectical method found in Plato’s Dialogues, such

as the Crito, requires the participants to progress via primitive rules of

deductive logic from Proposition A to B, then from B to C, and

ulti-mately to the common ground of the conclusion Z By contrast, in

today’s Dialogue of the Deaf, one side keeps repeating “It’s F, idiot,”

whereas the other retorts “No, it’s H, idiot.” Note that there is no

Proposition G linking F and H Moreover, the origins of propositions

F and H are never clear, much less questioned As for the idealized

terminus Z, well, it is neither sought nor reached After all, when each

side starts off knowing the truth, who needs the hassle of reasoning?

This is as true on cable news as it is in Congress or at the dinner table

at home Patience, along with a belief in logic, is required for the

dia-lectic to work, and both traits are largely absent from dialogue today

Studying the dialectical process in classical Greek as a young

person fundamental altered how I would pursue truth-seeking

throughout my own life, and how I expected others to reason in

attempting to convert me to their views It was a process that

required a measure of mutual respect, humility, patience, and

most important, opinion modifi cation A commitment to reasoned

debate used to be instilled at school by the teaching of the classics,

ancient Greek and Latin in particular, and by instruction in those

lost arts of rhetoric and debating But most students today are not

exposed to these disciplines What they have lost is not simply the

ability to reason and debate more clearly but also, and equally

important, the awareness of the fun of doing so.

The Triumph of Inductive Logic

If the painstaking process of deductive logic enshrined in Plato’s

Dialogues has fallen into disuse, the reverse is true of the other form of

logic: induction When using the term inductive logic I mean the use

of real-world data to arrive at a conclusion, a public policy, or whatever

Yet policy analysis today often refers to a partisan process in which

those on each side of an argument cherry-pick facts to support

their own case The invention of the Internet with its

volumi-nous and easy-to-access data has facilitated this process This is

of course a bastardization of the inductive process, which traditionally

was presumed to be objective in the sense made clear by the symmetry

conditions taught in any course in statistics But when participants in

a debate have never been taught to recognize and distrust the illogic

of bastardized induction, inductive arguments can be very persuasive

The person with more dramatic factoids almost always wins

Additionally, adducing supporting facts and examples is much

less time-consuming than deducing truth from persuasive premises,

the process of starting at A and ending at Z No room for sound

bites or tweets here! The difference between deduction and

induc-tion in a public policy context will be discussed at greater length

in the next chapter, partly because this distinction is central to the

argument in this book, and also because it is rarely discussed For

the moment, it suffi ces to acknowledge the triumph of induction

in amplifying the Dialogue of the Deaf It is a form of logic ideal for

politicians and commentators who know that their audience is very

impatient, and wants answers now It is the ideal form of logic for a

sound-bite era This relates to my next point

Lifestyle Changes and New Technologies

If the culture wars played a pivotal role in the advent of the Dialogue

of the Deaf, so did technological change and associated changes in

lifestyles With the invention of TV and then the Internet, life sped up

Audiences exploded in size Talk-show hosts and columnists became

celebrities And incomes exploded with audience size and with

celeb-rity Given ever-declining faculties of valid reasoning along with

increased impatience with laborious truth-seeking, commentators and

politicians now “brand” themselves by adopting increasingly polarized

identities Indeed, it was economically rational to do so Would Rush

Limbaugh be as rich as he presumably is had he adopted a Socratic

approach to political discourse? Moreover, once branded, how better

to preserve one’s brand and augment one’s income than to become

ever more expert in trashing the opposition, a pastime that spectators

seem to love? “Gotcha” has become the game of our times

Congressional Gerrymandering

During the past 30 years, states have been involved in a signifi cant

effort to gerrymander a large number of congressional seats Doing

so makes them “safe seats” controlled by one party By extension,

congressmen end up being pulled to the Left if they are Democrats,

and pulled to the Right if they are Republicans This is because they

are much more vulnerable to infl uences from the extreme fl ank

of their own party than to the rhetoric of the opposite party This

development in turn has widened the gulf between Left and Right

and thereby amplifi ed the Dialogue of the Deaf

Alas, the Media Was the Message

As these developments unfolded, Marshall McLuhan’s perceptive

prophecy was fulfi lled: The media did indeed become the message

What he missed is that truth-seeking proper would become the victim

of a media-centric world, and that political gridlock would emerge

with all of its attendant carnage In a world of “Gotcha” and of

black-and-white truths, who has time for those fi ne shades of gray

in which truth actually resides?

An End to the Dialogue of the Deaf and an Exit from Gridlock

There are two main problems to be solved if this nation is to get

back on track First, win-win policy solutions must be identifi ed for the

fi ve real-world problems addressed in Chapters 2 through 6 Second,

the Dialogue of the Deaf must come to an end, policy gridlock with it,

and these solutions must be implemented A central premise of this

book is that one and the same approach can be utilized to resolve both

of these problems More specifi cally, by utilizing somewhat advanced

forms of reasoning that have been developed during recent

decades and that are not widely appreciated (e.g., game theory,

the economics of uncertainty, the theory of endogenous risk,

incentive structure logic, and axiomatic ethics), we can arrive at

compelling bipartisan policy solutions to today’s problems and

mute the Dialogue of the Deaf at the same time

The Surprise

How can it be possible to kill these two birds with one stone? The

answer is that truly persuasive policy analysis will, by its very nature,

narrow the divide between Left and Right, thereby forging a new

middle ground This in turn is true because the kinds of logic

required to solve many important policy problems persuasively are all

branches of deductive logic—Socratic logic in a new guise, as it were

But by its very nature, this kind of reasoning shifts disagreement

back from policy conclusions where it is easy to disagree (“Higher

taxes on the rich—yes or no?”) to policy premises that are much less

contentious, and that most everyone can fi nd “reasonable.”

It is no accident that people tend to agree on premises, when

properly introduced For throughout history, premises (axioms in

science) were supposed to have the property of being transparent

and noncontroversial In mathematics, consider the axiom: For any

integer n, there is a next integer, n ⫹ 1 Try doing number theory

without this helper! Analogously, in health-care reform, consider the

two premises that a good system must permit much greater access

to citizens than at present, and that the growth of total expenditure

must not only slow, but decline as a share of GDP Apple pie and

motherhood, anyone? Who could question the desirability of either?

In political theory, consider the opening lines of the U.S Declaration

of Independence: “We hold these truths to be self-evident .”

Nonetheless, it can be a long way from premise to conclusion, and

this is where the necessity for deductive logic enters in

There are many forms of deduction, from sloppy to rigorous

modes In the ideal case, the logic guiding us from Basic Assumptions

introduced in step A to the conclusion in step Z will be rigorously

deductive in nature If this is the case, then there will be virtually